Oscarlyn Elder:
Families work hard to build wealth throughout their lifetimes, and most have the hope of seeing that wealth pass on to the next generation and generations beyond that, yet studies have shown that often wealth dissipates over
generations. What can families do to ensure that their long-term goals, not just for themselves, but for future generations are met? I'm Oscarlyn Elder, co-chief investment officer for Truist Wealth, and this is, I've Been Meaning To Do That, a podcast from Truist Wealth, a purpose-driven financial services company. We appreciate you listening. This episode is the first in our series on generational wealth.
Today we'll cover planning solutions, primarily focusing on different types of trusts, but in future episodes we'll discuss how to think about your family's culture and values as part of your generational wealth strategy, as well as the critical conversations to have with family members to prepare them for wealth. If you want to take notes on today's episode, we have our worksheet that you can download and print. You can find it by selecting this episode at truist.com/dothat. Today my guest is Trista Shigley, fiduciary division director of Truist's Trust and Estate Planning Group. Welcome to the podcast, Trista.
Trista Shigley:
Thanks for having me, Oscarlyn.
Oscarlyn Elder:
Trista, can you tell us a little bit about your role and how the trust and estate planning group helps clients think about the challenges and opportunities of creating and maintaining generational wealth?
Trista Shigley:
So I'm the fiduciary division director at Truist Wealth. So I co-lead all of our regional trust advisors nationally. And so what the team really does is provides advice to multigenerational families around their estate and trust plan. And the advice is really customized so that individual family around their needs, assets and values.
Oscarlyn Elder:
Trista, let's start by how we think about defining sustaining wealth. What does that mean to you and to our team here at Truist when we are working with clients?
Trista Shigley:
Our relationship many times starts with the wealth creator of the family. And so sustaining wealth to me is working with these wealth creators to put an estate plan that allows for a successful transfer of wealth to the next generation and many generations to come.
Oscarlyn Elder:
So sustaining wealth to us means the wealth is around for multiple generations. That's ultimately what we're looking to do. And that the manner in which that wealth is sustained reflects the values and the purpose of the wealth creator and what they had envisioned as their legacy. Is that fair?
Trista Shigley:
That's absolutely correct. There's not one flavor of an estate plan. There's many different flavors and each one really needs to be customized, the individual family needs and values.
Oscarlyn Elder:
So there's a lot of focus on sustaining wealth right now. There's some major trends that are happening or that are expected to happen over the next few years. Can you talk about those?
Trista Shigley:
Yeah. So I remember reading 5 or 10 years ago that there was going to be a significant wealth transfer. It's really interesting because it is upon us right now. And so to give you an idea, NBC News is actually saying that $68 trillion are currently being transitioned from baby boomers to Gen Z and millennials. That is a significant amount of money. And so making sure that we have estate plans that effectively transition this money that is adhering to the values and needs of that individual family are very, very critical.
Oscarlyn Elder:
There's a lot at stake for clients as they're looking to keep wealth working for many generations to come, but as they start thinking about sustaining wealth, it's not solely about tactics and taxes, right? I mean, we focus a lot on that and the solutions that help bring about the achievement of a client's purpose and goals, but to get to purpose and goals, all of us really have to start with values. And I'll just bring to folks attention, there's a great worksheet, I believe it's episode two of I've Been Meaning To Do That, that provides some basic values that if you're trying to define your values and position yourself to be able to articulate that to your advisor, to your family, go get that worksheet and begin to work through that because values are foundational to forming purpose and ultimately goals.
Trista Shigley:
Typically, a lot of folks when they think of estate planning, it is really been traditionally married with the tax code, but that's not really what estate planning is truly all about. Estate planning is really understanding what legacy the wealth creator wants to leave.
Oscarlyn Elder:
So if someone's out there listening to us today, perhaps one of the things they can be doing to prepare for advice is to be thinking about how to describe the family dynamics. This is what my family is like today and as the family inherits wealth in the future, this is the type of culture how I would like the inheritors to work together, the type of culture I want to foster going forward.
Trista Shigley:
It is an uncomfortable conversation, however, in order to make sure that the legacy plan really adheres to a family's value and needs, the trust administration team really need to understand what's going on so that we can help advise from a practical standpoint what is needed in those documents that will adhere that will be successful from an estate plan perspective.
Oscarlyn Elder:
So you mentioned documents a few times. Take us through what are the basic documents that we think about within the planning process, and let's kind of start with the foundational documents first.
Trista Shigley:
So I really like to think of estate planning as a pyramid. You have to get the foundation documents in place before you put additional layers in the pyramid. So the bottom five documents or the foundation documents is a power of attorney, a healthcare power of attorney, a living will, a will and a revocable trust. I'd like to take a minute to just talk a little bit more about each of those documents so the listeners have a basics of what they are. So a power of attorney is a document where you are naming an individual to make financial decisions on your behalf.
A healthcare power of attorney is another document where you're really naming an individual to make healthcare decisions on your behalf. A living will differs in different states, but what that one is going to do is give additional direction around end-of-life preferences and what would you would wish your family or other agents to do on your behalf. A will is going to be filed with the probate court. It's what is ultimately going to be public record. So you have to be careful of that.
The revocable trust is a trust and it's revocable, right? You can amend it and change it just as many times as you should wish. And the key thing here is any asset that you assign or you put, you transfer into your revocable trust, it avoids the probate process. So pre we just mentioned that probate cases are public record, so many clients like to go ahead and
fund or transfer assets into the revocable trust so it avoids the probate process.
The other thing I would just quickly note about revocable trust is that you have to assign property in there in order for it to work. And not to get too technical, Oscarlyn, but contract property such as IRAs or life insurance policy flow directly to the beneficiary. So that's a watch item for our listeners is they may have a great estate plan out there, but perhaps the majority of their assets are IRA assets and they have those named to the spouse. That will not fund their revocable trust, that will not follow their estate plan, it will go directly to the beneficiary.
Oscarlyn Elder:
So let's unpack that a little bit. I want to make sure folks hear. A revocable trust is in essence, a wrapper or a tactic that's often used to provide the individual and the family, the folks who are going to inherit wealth some privacy. Because what you just said is that that revocable trust and assets that are in it avoid probate. And in essence, when probate happens your information is very accessible to the public. It's laid bare. It's out there.
Folks are able to get to that information. And often with an individual who's created wealth or a family that's created wealth, they want privacy. They don't want everybody to know in the community what's happened with the wealth. They want that privacy. It's basically written in maybe erasable ink, right? So it's in ink, but I can change it if I need to. I can update it. But that revocable trust gives me confidence that if I were to pass away the resolution of my financial assets that are held in that trust would be private. Is that the way to think about it?
Trista Shigley:
Yeah. I love your analogy around the erasable ink. And I think anytime anybody hears trust it might be scary to think about those things, but the revocable is the basic one that you want in place where you can do some tax planning associated with it. But the main thing for the listeners to hear is it is revocable and amendable. You can change your mind. You are not gifting these assets away. And the other thing I just want to make sure for listeners is that they heard you say the term grantor, grantor just for folks awareness is the creator or the person that is funding the trust. And so they are the ones that are putting the assets in there.
Oscarlyn Elder:
And then the last point that you made, I want to make sure folks hear this as well. It's really important that you not just create the trust, but that you fund the trust. That you move assets into the trust that should be in the trust. And you pointed out an IRA has a beneficiary, it'll pass directly. And we can get into some of the complexities around that and can you name a beneficiary? But in essence you want to make sure that the trust is appropriately funded. Am I saying that correctly? I just want to make sure folks have the right takeaway.
Trista Shigley:
Yeah, I think that's spot on. So I think an easy way is to think about titling and how you have assets titled titled mean ownership. And so if you have, for example, an investment account and it's Oscarlyn Elder investment account, that is not titled in the name of your revocable trust. And so we frequently find clients that have a revocable trust in place, but there's no assets in it. And so by nature that one will likely fail because there's no assets funded in that trust. All those assets will flow through the probate process which is what the client ultimately wanted to avoid. So it's really important to work with your wealth team and also your attorney to make sure the right assets get the titling or ownership of the revocable trust if that's the technique that you wish to utilize.
Oscarlyn Elder:
Trista, you've touched on documents that I think you categorized as the more basic estate planning tactics and documents. Let's talk about one that's more complex and there are lots of flavors of it. So we're going to start out I think with a basic conversation around an irrevocable trust. So can you explain to our listeners what is an irrevocable trust?
Trista Shigley:
Happy to. So an irrevocable trust is irrevocable, right? So we had the revocable trust, which is amendable and change as many times as you want an irrevocable trust, you are gifting property into that irrevocable trust. You can't change it under some state laws, but typically we try to say that this is irrevocably done and the gift has been given to the beneficiaries. So I think it's really important from a terminology perspective that listeners understand who the different folks are within the trust. So we previously mentioned the grantor, but going a little bit more into that, it's the creator or the person who funds the trust. The beneficiaries of an irrevocable trust are the individuals that will benefit from the trust property, and the trustee is a fiduciary who is responsibility to adhere to the terms of the trust. And then as you understand, the players, think the next thing that you really need to understand or pay note of within your estate plan is the distribution standard. And what that means is really the access that beneficiaries ultimately will have to the trust property. And so the most common standard that I see, and that's the distribution standard or the access to the assets, is held education support and maintenance, or in the business we like to say HEMS for short. And so each of those different terminologies actually means access to different requests for the trust beneficiary. And so support and maintenance, for example, really means a monthly payment for the beneficiary to support their ongoing expenses. Health is medical bills and education is college expenses. But for example, if the beneficiary wasn't getting a Ferrari every year, that is not within the terms or that distribution standard to make their monthly amount or their quality of life different than what it was before. And so words really matter in an irrevocable trust. They really need to be aligned with the grantor intent. And so for example, if you add one additional word such as comfort, that means to the trustee that the beneficiaries have much more liberal use of funds for that trust property.
Oscarlyn Elder:
And so Trista, there's a lot to unpack there. We want to make sure that folks understand that irrevocable trusts typically cannot be undone. They typically cannot be changed. And so as you are crafting this type of trust, you need to look at every word. It's super important that you understand how those words will be interpreted in the future because it's possible more than likely that the use of the trust is going to happen when you're not around to explain your intent. And ultimately most folks want this type of trust to reflect their values, their intent, their developing it for a specific purpose or goal. So again, I just want to draw that out for folks. What I heard very clearly from you is words really matter, especially in this type of trust. And often folks are focused on how are the dollars going to go out? What's that distribution standard? You talked about HEMS health, education, maintenance and support, right? That's a standard we see often, so we want people to know about that.
Trista Shigley:
Yeah, I mean Oscarlyn I would just say that the terms and making sure that they really, I'm going to double down irrevocable trust, this is your legacy for the next generation, but many times generations to come. And so it is very important that that trust document reflects those values. And so another example I would give, talking to clients, perhaps they want their beneficiaries to have access to these assets to start a business or to put a down payment for a house. I mean, those are the type of conversations that are really important when you're doing your trust planning to understand what my beneficiaries are going to have access to. Another example would be, "Hey, I want them to have a certain percentage of the trust and I want them to potentially have access for some extreme things, but I don't want them to live off the trust." So there's a lot of conversations to really understand what truly is that wealth creators intent so that we can make sure that the terms of the document and the practical administration of that document is aligned with what they want.
Oscarlyn Elder:
Trista, thank you so much for helping folks to understand that. I want to emphasize one other point that I heard is that there is a difference in the word support and comfort. And so support is typically included in most of these types of documents and it indicates support for everyday expenses, let's say a standard of living around an individual whereas the word comfort denotes more. It denotes the potential to access funds for higher level discretionary spending in essence. And we want to make sure that folks understand how those words can be interpreted by a trustee down the road. There are two other words that I would like you to talk to, and they seem like small words, but I think they make big differences. The words may and shall. What's the difference in how those words impact a document?
Trista Shigley:
Yeah, I sound like a little bit of a broken record when I keep on saying that words matter, but those two words matter significantly when you are the fiduciary or the trustee. So "shall" indicates no discretion. You are doing that, you shall do that. "May" means you do have the discretion. So it's up to the trustee to decide if they should do a distribution and it adheres to the terms. So again, words very much matter when you're thinking through your trust planning and the practical nature of these documents is really important that you understand so that your legacy goals are adhered to for this generation and then also the next generation after that.
Oscarlyn Elder:
Thank you Trista for explaining that difference. I think it's really important that our listeners understand that difference as they start conversations around what tactics they want to use and what their documents are going to say. Estate and gift tax codes really shape a lot of the conversations around these types of structures and how we think about sustaining wealth. Can you share at a very high level kind of the current estate and gift tax code parameters that our listeners should have some knowledge about?
Trista Shigley:
So I think most listeners are familiar with income tax, maybe capital gain tax. And so similar to those taxes, there's also an estate tax and a gift tax. And so under the current tax code, a taxpayer is allowed an exemption from these different taxes. The current exemption is 13.61 per person or 27.22 per married couple.
Oscarlyn Elder:
And that's million. I want to make sure folks hear. That's million.
Trista Shigley:
Million. That's right. Million with an M.
Oscarlyn Elder:
Okay. Yes.
Trista Shigley:
I think that the important thing for listeners to note is that these exemption levels are set to sunset January 1st, 2026, and the levels are going to be reverted back to five million plus inflation. And the really significant piece here is anything above that exemption amount is taxed at 40%. So that's a pretty significant tax that you need to be thinking about. And the reversion back to five million also might impact more of our listeners. And so the ask here is really to review your estate plan and see if there's any potential gifting strategies that you might need to utilize before our sunset in 2026. The other thing that I would note as well on this topic is that if you have an estate plan currently in place there's what's called a funding formula. And not to get too nerdy, but that basically means how different trusts are funded. And that's really important when you have a change in exemption levels because you could have one trust that's funded with more funds or less funds than you initially thought. So a very careful review of what your potential current trusts are in place now and then also with these exemption levels coming is really important for listeners to do.
Oscarlyn Elder:
So Trista, what I'm hearing, sunset will happen beginning of 2026 unless there's action taken within congress and then signed by the president to deal with the sunset. So base cases, there will be a sunset and folks need to be aware of that. They need to be reviewing their structures, making sure that they're taking advantage as appropriate to them of what's in place today. And they need to have a special awareness of the potential that these funding formulas could be impacted in a way that perhaps they don't really understand today if there is a change or when there's a change in the exemption amount. Again, keeping that as your base case you just need to be aware. And we really recommend that folks get into their advisors and have these conversations now. We've been talking about it on this podcast. This is the second or third time that we've referenced it, and we've definitely referenced it as well on our quarterly investment webcast as well. We want to make sure that folks are being proactive and that they're not caught kind of flat-footed around this, but that they're really taking control and taking action because what this podcast is about, taking action to put themselves in the best position possible as the sunset occurs.
Trista Shigley:
That's absolutely correct.
Oscarlyn Elder:
What I'd like to do now is shift gears or maybe double click into a type of an irrevocable trust. And so there are all sorts of different types of irrevocable trust. We don't have enough time on this particular episode to go into even a quarter of them all. We'll have you back in the future and we'll talk about some different types of irrevocable trust, but what I'd love for you to do is highlight one for our listeners now, highlight a solution, a type of trust that you're seeing put into practice a good bit in today's environment.
Trista Shigley:
Yeah, so irrevocables, as we previously mentioned, they come in a lot of different flavors. We love our acronyms within the estate planning world. So what I want to talk about today is the Spousal Lifetime Access Trust, or as we like to call it a SLAT. And so what a SLAT is, it's an irrevocable trust, again irrevocable, and you're putting the wealth creator, the grantor is putting property within this trust that's going to be benefiting the spouse. And so you might ask why would you do that, right? And what you're really doing is you're removing those assets from your estate and you are freezing the value in today's world so that it doesn't continue to appreciate. So when you're looking at this strategy, you're trying to identify assets that are highly appreciating so that you get some of the potential estate tax exposure that we previously mentioned out of your estate. And so the one thing that I would caution around this strategy, it works best if it's a married couple that are in very good terms with each other, however, there is a disadvantage if they divorce or a potential beneficiary dies, the donor spouse no longer has indirect assets to this trust. So you really need to watch out for that. The other one that I see here is the reciprocal trust doctrine, which basically means the IRS doesn't like that if spouses created trust for each other and their identical, the trust could fail and your gifts could fail. And so attorneys are really cautious around this to make sure that if you do do SLATs for each spouse, that they are different enough from each other that the IRS will not come in and say, "Hey, these aren't really actually true gifts to each other." I also would say we've done some really cool strategies with the SLAT where we really enhanced the effectiveness of trying to get these assets out of the estate. Whether it's a purchase of life insurance, we might've coupled some GST planning.
Oscarlyn Elder:
What does GST mean?
Trista Shigley:
GST is generation-skipping tax. We talked about the estate tax, the income tax. It's another tax out there that you have to look out for. Back in the day, some of the families were getting around the estate tax. And so what they were doing is the grandfather was giving money directly to the grandchildren. So in essence, that tax that we talked about in the middle, that estate tax, they weren't capturing that estate tax at one generation level. So the IRS got smart about that and they created this GST tax. So it's another thing that you really need to do planning around, but similar right now, the exemption levels or the saying whether it's a state or GST, it's also taxed at 40%. So it's pretty important to do. But that's just one kind of irrevocable trust. There's a lot of different ones that are utilized. So that's just one tool in the toolbox that a client could use in order to adhere to their estate plan.
Oscarlyn Elder:
You've given us a double click into an irrevocable trust type, that's a SLAT. So it's a Spousal Lifetime Access Trust, SLAT. It's a specific type of trust that's designed to some tax benefits ultimately for a couple a family. It is irrevocable. So as you've pointed out, you've got to know kind of the consequences because if there's a divorce, there can be some consequences there where the grantor may not be able to access funds. And so folks need to go into it eyes wide open which is the case with all trust structures. But you've just pointed out some of the benefits of this particular type of trust. So if this is of interest to you, what I would say as a listener, talk to your advisor, learn more about it. There are other techniques, as Trista has pointed out as well. This is just one that we wanted to highlight today because it's a technique that we're seeing couples use on a regular basis.
Trista Shigley:
Yeah, that's absolutely correct. With folks, especially with the potential sun setting, this is one strategy that they're really utilizing quite frequently. The typical case we might see is a business owner, right? Their business is highly appreciating, very effectively cash flowing. Perhaps their estate is over the 26 million. And so trying to talk through them of, all right, let's proactively perhaps put some of the business interest within this SLAT so that we freeze, meaning the value is today, that's put it into that trust, and then they get that value out of their estate. And so it's a really effective strategy, but the important thing doubling down is you're setting it up for the benefit of your spouse, and potentially some of your family members as well. But it's very important to know it's an irrevocable gift to your spouse. And so listeners need to really make sure that that fits with their values and what they want to do and also their family dynamic.
Oscarlyn Elder:
Well, Trista, thank you so much for the information that you've brought us today around irrevocable trust and reminding folks that words really do matter and that the trust should reflect, again, the values and the purpose and the goals of the trust creator or grantor. And it's a great segue into what we're going to talk about next episode, which is preparing the next generation to continue your legacy and to keep growing and sustaining your family wealth. Because the trust that we've talked about today are great ways to financially protect your wealth, but when it comes to sustaining wealth over multiple generations, a critical piece of that is how you talk to your children about wealth, how you bring them into the conversation at different stages and ages, and how you understand hopefully their goals, and values and maybe also adjust your wealth plan to account for that. Next episode, we'll be talking with Emily Hanselman, director of family education at the Truist Center for Family Legacy about those conversations. Trista, thank you so much for your time today. You've been just a wealth of knowledge. You've provided really important information to our listeners that will help, I think, elevate their awareness, but also compel them to action which is what this podcast is all about. It's about taking action.
Trista Shigley:
Thanks for having me, Oscarlyn.
Oscarlyn Elder:
Before we go, we have a traditional on this podcast of asking our guest about what they've been meaning to do. So what's the one thing that you've been meaning to do but you haven't done and you're going to commit to do in the future?
Trista Shigley:
So I must admit, Oscarlyn, I'm kind of like the doctor that needs to go to a checkup. My estate planning documents, I did have them drafted right after my child was born, however, he's eight now. And so family dynamics of who those decision makers, who the guardians are for my children need to be revisited. So I look forward to doing that.
Oscarlyn Elder:
Well, Trista, I've been through that journey myself in the last couple of years. I know it's really important. I'm going to check in with you to see how that's going. So get moving. Get into action. And thank you again for joining us today. I've really enjoyed our conversation and I think we've given listeners some very important to-dos and things that can get them moving in the right direction. So thank you for joining us.
Trista Shigley:
Thanks, Oscarlyn.
Oscarlyn Elder:
And for you listening, thank you for joining me today. Keep an eye out for the rest of this series in the coming months. And if you liked this episode, please be sure to subscribe, rate and review the podcast, and tell friends and family about it. If you have a question for me or a suggestion for this podcast, email me at dothat@truist.com. I'll be back soon for another episode of I've Been Meaning to Do That, the podcast that gets you moving toward fulfilling your purpose and achieving your financial goals. Talk to you soon.
Today we've discussed various trust and estate planning topics. Any comments or references to taxes or estate planning are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.
